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Why People Believe Weird Things About Money

Would you rather earn $50,000 a year while other people make $25,000, or would you rather earn $100,000 a year while other people get $250,000? Assume for the moment that prices of goods and services will stay the same.

Surprisingly — stunningly, in fact — research shows that the majority of people select the first option; they would rather make twice as much as others even if that meant earning half as much as they could otherwise have. How irrational is that?

This result is one among thousands of experiments in behavioral economics, neuroeconomics and evolutionary economics conclusively demonstrating that we are every bit as irrational when it comes to money as we are in most other aspects of our lives. In this case, relative social ranking trumps absolute financial status. Here’s a related thought experiment. Would you rather be A or B? (continue reading…)

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Evonomics

Evolution and economics are both examples
of a larger mysterious phenomenon
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Living along the Orioco River that borders Brazil and Venezuela are the Yanomamö people, hunter-gatherers whose average annual income has been estimated at the equivalent of $90 per person per year. Living along the Hudson River that borders New York State and New Jersey are the Manhattan people, consumer- traders whose average annual income has been estimated at $36,000 per person per year. That dramatic difference of 400 times, however, pales in comparison to the differences in Stock Keeping Units (SKUs, a retail measure of the number of types of products available), which has been estimated at 300 for the Yanomamö and 10 billion for the Manhattans, a difference of 33 million times! (continue reading…)

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The Prospects for Homo economicus

A new fMRI study debunks the myth that
we are rational-utility money maximizers
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Imagine that your child’s private school tuition bill of $20,000 is due and the only source you have for paying it is the sale of some of your stock holdings. Fortunately, you got in on the great Google godsend and purchased 100 shares at $200 each, for a total investment of $20,000, and the stock is now at $400 a share. (continue reading…)

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Free to Choose

The neuroscience of choice exposes the power of ideas
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Have you ever watched a white rat choose between an 8 and 32 percent sucrose solution by pressing two different bars on variable-interval schedules of reinforcement? No? Lucky you. I devoted two years of what would otherwise have been a misspent youth to running choice experiments with rats in Skinner boxes for my master’s thesis on “Choice in Rats as a Function of Reinforcer Intensity and Quality.” Boys gone wild! (continue reading…)

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Long Love Affairs with Libertarianism

The 20th century philosopher-novelist Ayn Rand, author of The Fountainhead and Atlas Shrugged, famously called herself a “radical for capitalism.” The libertarian writer and journalist Brian Doherty has borrowed the epithet for his remarkably engaging and encyclopedic history of the movement in “Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement” (Public Affairs, 768 pages, $35). (continue reading…)

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